UK Government debt: new data shows the Conservative Party is wrong
George Osborne has been banging on again about the dire state of the UK’s public finances. But how bad is the situation really compared to equivalent economies?
IMF data provides a clue and is proving a very useful way of cutting through the fog of misleading political debate in the UK . The IMF’s various comparisons of international responses to the economic crisis show four key things about the UK:
1. Our outstanding public debt as a ratio of GDP is well below the average for the nine large economies studied by the IMF; UK public debt is now at 58.2% against an average of 86.9%. It was 42.9% before the crisis against an average of 74.7%.
2. The current balance of public spending against borrowing is above average: -7.2% for the UK against an average of -5.3%. It was -2.1% before the crisis which was dead on average.
3. The size of the economic stimulus in the UK is very low; 1.5% against an average of 3.4% of GDP.
4. And some new data just published shows that the UK has spent by far the largest proportional amount on helping the banks; an incredible 19.8% of GDP against an average of 6% for Europe and North America. (Update 9th March: Stephanie Flanders, also writing about the IMF data, reckons the net cost to the UK taxpayer will be closer to 9% of GDP rather than 19.8%; still very high by anyone’s estimate though.)
What this data seems to indicate is that when compared with equivalent nations, the UK’s public finances were very healthy prior to the crisis. However, since last September, the deficit has been particularly badly hit by vast spending on the banking sector. So despite what the Tories say, any weakness in the finances today is not the result of the Government failing to “mend the roof while the sun was shining” before the crisis but the result of very recent emergency policies which, as far as I understand it, the Conservative Party doesn’t actually oppose. Of course, facts or logic can’t be allowed to get in the way of a vote-winning argument.
For the Government, however, the message is challenging. A much larger amount has been spent on saving the banks than on stimulating the real economy compared to other countries. It was expected that funnelling in such big sums would kickstart bank lending as well as prevent financial meltdown. It may have achieved the latter but not the former. Chances are, therefore, that the Government may soon have to borrow more to place some sort of cushion under the real economy itself. This will weaken the public finances further. The Tories will squeal but the truth is this may spook the markets less than the realisation that the Government has done relatively little so far that might limit the recession when compared to other nations.